KDB Aims at Synergy

State-run bank attempts to expand its project finance as new growth engine in tandem with construction projects

Chairman Min Euoo-sung of the KDB Financial Group and president of the Korea Development Bank, said chances are great that Hanjin, Dongbu and Dongyang groups will be able to graduate from the extensive restructuring conducted by KDB next year.
During an exclusive interview with chosunbiz.com, set up jointly by the Chosun Ilbo and its sister paper Chosun Business Daily, Min said those business groups have been under restructuring without any problems and their business prospects look good down the road.
Min also said KDB will take over Daewoo Construction alone and get synergy out of the merger in the area of project financing for the construction company’s nuclear power plant projects.
Min’s plan for Daewoo Construction might mean that the private equity fund that KDB plans to set up would operate the construction company with extensive projects abroad, particularly in the Middle East and Africa. It was the first time Min talked about KDB’s plan to take over the top construction company in Korea, which is an affiliate of Kumho Group, now under heavy financial pressure.
The chairman said in either July or August the KDB Fund, jointly with financial investors, will take over the construction firm to help the Kumho Group solve its financial woes through restructuring. Ultimately, KDB will sell the construction firm to a capable investor, which he thinks would take some time as the economy is still not out of the woods, as seen by the fall of stock prices of companies that showed interest in the construction firm.
He said the qualification for the firms that want to take over Daewoo would be synergy from the takeover. He said that last year domestic builders clinched over $55 billion worth of construction projects abroad and if KDB supports them in their nuclear power plant construction orders with project financing, it would create substantial synergy among financial and construction companies.
Min said he plans to make Daewoo and its investors part of a new growth aspect of the Korean economy and he hopes an investor even bigger than KDB will appear on the scene and take over the construction firm so that it would be able to create even bigger synergy than that with KDB.
Over the past few decades KDB has played a leading role as policy lender in transforming Korea from a war-ravaged agrarian economy into a manufacturing powerhouse by supporting local businesses and government-led construction projects.
Ahead of privatization, the lender has redefined its position as a leader in financial globalization. It is now seeking to play a key role in exporting “finance” abroad by capitalizing on its dominant position in the area of project finance (PF).
PF is the financing of long-term infrastructure and industrial projects. Debt and equity used to finance the projects are paid back from the cash flow generated after the plan has been implemented.
KDB is a pioneer in the domestic PF market. It completed the first-ever PF deal by playing a key role in financing the construction of Incheon International Airport Highway in 1994. Since then, the state-run lender has led the industry by achieving 289 deals valued at 30.5 trillion won.
As a result, its market share has increased dramatically. KDB occupied one third of the market in 2006 and nearly doubled its share one year later, taking up 59.1 percent of the local PF industry. It reached 66.7 percent in 2008, and last year 85.2 percent of PF deals were completed by KDB.
With such remarkable performance, KDB has gained growing recognition from the global business community. Project Finance Magazine, a monthly trade journal published by Euromoney Publications, awarded the Asia-Pacific Road Deal of the Year 2009 to the lender for its PF deal for the West Suwon-Uiwang toll road.
“The deals backs the development of the West Suwon-Uiwang tollroad project, one of very few major Korean infrastructure deals to close last year in a market where development has been hit hard by the global liquidity crisis,” the magazine said on its official website. nw

Chairman Min Euoo-song of KDB Financial Holding Co.